Tuesday, December 27, 2016
Institute on Taxation and Economic Policy, State Estate and Inheritance Taxes:
For much of the last century, estate and inheritance taxes have played an important role in fostering strong communities by promoting equality of opportunity and helping states adequately fund public services. While many of the taxes levied by state and local governments fall most heavily on low-income families, only the very wealthy pay estate and inheritance taxes.
Changes in the federal estate tax in recent years, however, caused states to reevaluate the structure of their estate and inheritance taxes. Unfortunately, the trend of late among states has tended toward weakening or completely eliminating them.
But this need not be so; states can restore or improve their estate and inheritance taxes as a vital progressive revenue source to support services and communities while also protecting the source from the whims of federal lawmakers. This policy brief explains state inheritance and estate taxes, discusses recent state trends and policy decisions that have impacted the taxes, and explores how states can adopt or strengthen these important components of a progressive tax structure. ...
The extensive concentration of wealth held by a small number of extremely wealthy families is of more concern now than perhaps ever before. Estate and inheritance taxes can help address rising wealth inequality and fund crucial investments in our communities while pushing back against efforts at the federal level to carve out tax breaks that only benefit the wealthiest Americans and undermine equality of opportunity. While these taxes typically represent a small part of overall state tax collections, they play an important role in reducing the transfer of concentrated wealth from one generation to the next—a fact that makes the recent trend toward cutting state estate taxes especially troubling. Because the federal estate tax has weakened over the last decade, states have an opportunity to take the lead on this important issue and develop or strengthen their estate and inheritance taxes.